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2013 in Review: Surprises from the ETF Industry

Despite continued volatility in the stock, bond and commodity markets, along with year-long speculation about the Fed’s bond buying program, the year ends with near-record highs for the global ETF industry. Flows total more than $209.9 billion to date. Here, our top 10 surprises for 2013*.

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1. U.S.-listed ETFs posted a 24% growth rate – the highest of any region. This is especially significant because the U.S. accounts for 71% of all ETF assets worldwide, yet this year attracted more than 80% of all new dollars invested in ETFs this year.

2. ETFs offering developed market equity exposure drove U.S. ETF industry growth to record highs. Taper fears led to record outflows in August, but the Fed’s decision to delay a shift in monetary policy drove $128.6 billion in US Equity ETF net new assets. In total, developed Markets Equity flows as of November were $227.9 billion.

3. Emerging market equity ETP flows fell into negative territory, approaching the end of 2013 with nearly $10 billion in total outflows. Emerging market flows were volatile throughout the year, as investors anticipated a shift in monetary policy, and especially drastic in June, just after Ben Bernanke hinted that the Fed could soon wind down its bond buying program.

4. Strategic Beta funds captured nearly a third of industry flows. What’s more, we saw asset growth in excess of 40% in this category over the last eleven months. Dividend weighted and minimum volatility funds were two drivers.

5. Fixed income experienced a duration rotation but kept growing. Heightened scrutiny of the Fed’s next steps pushed many investors to seek solutions to reduce interest rate risk. Short duration ETPs took in nearly $35 billion in new assets.

6. The pace of new ETF launches moderated, but still attracted significant assets. We saw more than 400 new ETFs come on the scene this year attracting more than $22Bn and bringing the total number available worldwide to more than 4,900.

7. Demand and dollars invested in Pan-European ETFs reached all-time highs. When news of the Eurozone’s emergence from a recession during the second quarter of the year made headlines, investors flocked to this space. We saw $24.3 billion in inflows during the second half of the year through November.

8. Monetary and fiscal policy heavily influenced ETF flows. Fears of the fiscal cliff, shifting signals from the Fed, quantitative easing in Japan and Abenomics, plus debt ceiling negotiations, led to sporadic peaks and valleys throughout the year.

9. U.S. retail investors increased their ETF usage. We see that these investments are becoming more mainstream, as more than $20 billion in assets came from individual investors this year alone.

10. Gold outflows were a consistent and significant drag on industry growth. This year’s 48% drop in assets contrasted record-breaking inflows in 2012.

Dodd Kittsley, CFA, is the Global Head of ETP Research for BlackRock and a regular contributor to the The Blog.